WASHINGTON, Oct 12 (Reuters) - The Obama administration on
Tuesday lifted its ban on deepwater drilling seven weeks ahead
of schedule, saying new rules cut the risk of a repeat of the
BP (BP.L) oil spill, the worst ever to hit the United States.

The U.S. Interior Department said oil companies must comply
with new regulations and demonstrate they can adequately
respond to blowouts.

"The oil and gas industry will be operating under tighter
rules, stronger oversight, and in a regulatory environment that
will remain dynamic as we continue to build on the reforms we
have already implemented," Interior Secretary Ken Salazar said
in a statement.

Analysts said the new rules could slow the return of
deepwater drilling to pre-spill levels. An industry group and
Senator Mary Landrieu of Louisiana urged Interior to move
quickly on permitting, while the environmental group Greenpeace
blasted the early end of the moratorium.

The government imposed the deepwater drilling freeze in
late May after BP's ruptured Macondo well began leaking
millions of gallons of oil into the Gulf.

The ban was supposed to last through November. The Obama
administration is lifting it as Congressional Democrats prepare
for mid-term elections in November, with voters worried about
the economy and unemployment.

The ban drew protests from Gulf of Mexico lawmakers worried
about job losses and a court challenge from energy companies.

While reopening the deep Gulf waters will be welcome news
for drillers such as Transocean Ltd (RIG.N) and explorers like
Royal Dutch Shell (RDSa.L), analysts say it will take months or
years to return activity to the pace prior to the April 20
Macondo disaster.

Michael Bromwich, head of Interior's Bureau of Ocean Energy
Management, said it would take time for companies to comply
with the rules and for the department to review new permit
applications.

Every rig must be inspected before drilling begins and
company chief executives must certify each project has met all
requirements. (Graphic: link.reuters.com/xur95j )

"My sense is we will have permits approved by the end of
the year," Bromwich told reporters on a conference call.

Shares of drilling contractors rose on the end of the ban.
Transocean shares climbed 4 percent in U.S. trading to $64.42,
and Diamond Offshore (DO.N) gained nearly 3 percent to $68.48
in afternoon trading on the New York Stock Exchange.

COSTS TO RISE

New procedures and more rigorous controls will increase
costs and slow development of a region expected to boost U.S.
domestic oil production. [ID:nN30288579]

Shallow-water drillers, which were not subject to the
drilling ban, also have complained about lengthy delays in
permitting since the BP spill.

Jack Gerard, who heads the American Petroleum Institute, a
major oil lobbying group, urged the government to move quickly
to restart drilling.

"Even though the moratorium is lifted, if the permitting
process comes to a grinding halt we really haven't accomplished
much," Gerard told Reuters.

The department said there were 18 idled rigs in deep water
that must seek drilling permits under the new safety rules.

"Today's decision is a good start, but it must be
accompanied by an action plan to get the entire industry in the
Gulf of Mexico back to work," Senator Mary Landrieu, a
Louisiana Democrat and moratorium critic, said in a statement.

She said she would block confirmation of the Obama
administration's nominee to head the Office of Management and
Budget until she was certain drilling had resumed at an
adequate pace.

"The White House wants us to believe that they have solved
all the dangers of offshore drilling and we can return to
business as usual," Radford said in a statement. "It is a false
promise, if not a big lie."
(Additional reporting by Tom Doggett, Brady Reddall and Anna
Driver; Editing by Russell Blinch, David Gregorio and Dale
Hudson)